In search of "Common Sense"

Nov 28, 2011

Do the numbers that you look to navigate your improvement journey give you the right picture?


The din about Management Accounting practices, especially those related to Product Cost Accounting, not helping at all the leaders / top managers as well as operational managers, has been around for quite some time.

Dr. Eliyahu Goldratt in his famous 1983 presentation at APICS proclaimed “Cost Accounting is enemy number one of Productivity”.

Tom Peters’ published an article in 1987 The Accountants Are Letting Us Down” where he gave numerous examples how the Cost Accounting numbers instigate the operational and top managers to take decisions and actions which are detrimental to organisation’s medium term performance as well as long term endurance and survival.

Many decades before the above two, Henry Ford had stated his “common sense” principle – “We should not let Cost Accounting run the business!”

Even Taiichi Ohno, founding father of the Toyota Production System was quite alergic to cost accounting. He famously said – "It was not enough to chase out the cost accountants from the plants. The problem was to chase cost accounting from my people's minds"

If such has been the vehemence with which certain practices are being continuously denounced, what keeps these practices afloat? 

As per The American Institute of Certified Public Accountants, both IFRS and GAAP recommend direct production cost and overheads allocation to arrive at value of the inventory. http://wiki.ifrs.com/Inventories (See 13.8 and 13.9). This is precisely at the root cause of some of the distortions and incorrect decisions.

Still the "authority" recommends!

Completely beats me.

Can someone throw light on this?